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FSA/PN/012/2007
26 January 2007

The Financial Services Authority today set out its views on recent increases in mortgage exit administration fees (MEAFs), and how it expects mortgage lenders to address the issues raised.

The FSA is responding to recent concerns that MEAFs had been increased unfairly, so consumers were being charged higher exit fees than they had expected to pay. Lenders often charge MEAFs when borrowers pay off their mortgage or switch to another lender to cover the staff and other costs involved.

Clive Briault, FSA Managing Director of Retail Markets, said:

"We expect that these measures, agreed with the Council of Mortgage Lenders, will stop borrowers from being surprised by unexpected increases in these fees. People will now know when they sign up for a mortgage what fee they will pay on exit, or should be given a clear idea of how the fee might be increased fairly."

The FSA’s views are set out in a Statement of Good Practice issued under its powers as a qualifying body under the Unfair Terms in Consumer Contracts Regulations.

Key points are:

Current customers: Lenders will have to decide by 28 February 2007 which of the following outcomes they will adopt for their current customers:

• charge no MEAF;
• charge the original MEAF;
• charge a revised MEAF; or
• charge their current increased MEAF.

The FSA is unlikely to investigate further a lender which adopts one of the first two options, or the third option if the revised MEAF is lower than the original MEAF. However, the FSA will require lenders that adopt any other option to justify their position. The “original MEAF” will usually be the MEAF that was disclosed to the customer when they entered the original contract, took out a further advance, or changed their mortgage product.

Past customers: The FSA expects lenders to treat past customers who complain about the level of the MEAF they were charged when they exited their mortgage contract in the same way as the firm will be treating comparable current customers. So, for example, if a firm will only charge its current customers the original MEAF, then if a past customer who has paid a higher MEAF to exit complains, he or she can expect a refund of the difference between the actual MEAF paid on exit and the original MEAF.

The Council of Mortgage Lenders has worked with the FSA in drawing up the Statement and endorses the menu of options to its members who represent virtually the whole of UK residential mortgage lending.

Notes to Editors

1. Statement of Good Practice on Mortgage Exit Administration Fees [PDF] is available on the FSA Website.
2. The FSA has powers under the Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations) relating to the fairness of terms in standard form consumer contracts. More information about the FSA’s approach to its use of these powers is set out in Statement of Good Practice on the Fairness of Terms in Consumer Contracts [PDF] published in May 2005.
3. Paragraphs 1.8 to 1.10 of today's Statement set out definitions relating to MEAFs. Section 4 – The Way Forward outlines what consumer outcomes we expect lenders might adopt, and our likely regulatory response to those outcomes.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.